Research firm rebuts Kinder Morgan’s rebuttal

By Claudia Assis

Bloomberg News

Energy analyst Kevin Kaiser of Hedgeye Risk Management took aim at Kinder Morgan again on Thursday, saying in a research note the pipeline operator is “defending the indefensible” and its maintenance practices are still questionable.

Kaiser caused a twitter storm a few weeks back calling Kinder Morgan
/quotes/zigman/3811989/quotes/nls/kmiKMI a “house of cards” and issuing a report saying the company skimped on maintenance expenses to boost cash payments to shareholders and to fund the general partner that controls the company.

Kinder Morgan shares fell as much as 8% following the criticism, and, quite incredibly, Chief Executive Richard Kinder reacted to the note and the sharp share drop by calling a webcast last week to rebuff Kaiser’s research.

Shares of Kinder Morgan were up less than 0.1% Thursday, in line with energy peers on the S&P 500 Index.

Although Kinder didn’t mention the analyst by name, he urged investors to consider Kinder Morgan management’s combined “hundreds of years of experience” over the opinion of one analyst. Kinder also said some of the numbers in the report wrong.

In Thursday’s report, Kaiser does correct some of the math in his first report, but said his point remains the same: Kinder Morgan can’t justify its maintenance capital spending policies. Thursday’s report is entitled “Kinder Morgan’s Rebuttals Don’t Hold Up.”

The policy “creates an enormous wealth transfer from [Kinder Morgan Energy Partners
/quotes/zigman/174054/quotes/nls/kmpKMP] to [Kinder Morgan Inc.] that should not be taking place,” Kaiser said (italics are his). This policy is materially misleading, and results in [Kinder Morgan Inc.] taking hundreds of millions of dollars from [Kinder Morgan Energy Partners] every year that it should not be.”

An e-mail to Kinder Morgan seeking comment about Kaiser’s latest report has not been immediately returned. Kinder Morgan does not usually comment on analyst research notes.

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